Financial mistakes made in your 20s can haunt you for years to come. It’s a time when you’re gaining independence and learning how to manage your money, but it’s also a time when costly errors are easily made. Here are five of the biggest financial mistakes to avoid in your 20s:
Spending more than you earn is one of the biggest financial traps young people fall into. When you get your first job or credit card, it’s tempting to splurge on new clothes, gadgets, and nights out. But spending more than you earn means racking up debt and not having enough left over to save. Make a budget, track your spending, and avoid impulse purchases.
Not paying off credit cards in full is another common mistake. Only spend what you can afford to pay off each month. Carrying balances from month to month means paying expensive interest charges, and it’s easy for balances to spiral out of control. Pay off cards in full whenever possible.
Failing to save enough is a mistake that can set you back for years. When you’re young, time is on your side. Money you save can grow substantially over time through compounding returns. Aim to save at least 10 to 15 percent of your income, and make saving automatic by setting up direct deposits to your savings account.
Not investing for the long run is a missed opportunity. Money you invest in your 20s has decades to grow. Look for ways to invest that don’t require a lot of money upfront, such as contributing enough to get any matching from your employer’s 401(k) plan or opening a Roth IRA. Start with just $50 or $100 a month if needed.
Buying too much car is a common financial mistake for young people. When you get your first well-paying job, you may want to reward yourself with a fancy new set of wheels. But buying too much car means paying thousands extra in interest charges, higher insurance premiums, and steeper depreciation costs. Buy a reliable used car instead and avoid payments that exceed 10 percent of your monthly take-home pay.